Workshop

The Political Economy of Institutional Change and Social Blocs: a Neorealist Approach

Celâl Güney

Introduction

  • Objective: present the neorealist approach to institutions, institutional change and social conflict developed by Bruno Amable and Stefano Palombarini

  • Focus on the theoretical framework (first part), empirics (second part), with example taken from my own applied research on Switzerland.

  • Concluding activity: build your own social bloc

A new political economy framework

Several issues with existing economic, comparative capitalism and political economy frameworks
  • Tainted by functionalism
  • Static
  • Normative

Example of mainstream normativity: OECD reports

Foundation of a neorealist approach

  • Offer a positive approach (avoid normativity)
  • Link political, economic and social dynamics
  • Explore the causes of institutional change
  • Fundamental question: in a system tainted by contradictions and crises, why do we observe periods of relative stability ? How is social conflict regulated ?

Foundations of the neorealist approach: social conflict

  • The social structure being heterogeneous, individuals’ interests are varied
  • This diversity of social expectations leads to contradiction and opposition of interests between actors
  • There is no “general interest” or “general welfare” as in normative approaches (Marxism, mainstream econ…) ==> social conflict cannot be abolished, but merely regulated

Regulation of social conflict: Ideology (1)

  • Shapes actors’ representation of the world, their position in society and thus their interests

  • Reduces heterogeneity from the structure by making agents converge to same political demands

  • Social expectations are not only shaped by class, stratification and the position in the structure

  • Reduces the space of acceptable political demands and homogenize the diversity of interests to a certain extent, by disregarding some demands deemed as socially unacceptable

Regulation of social conflict: institutions

  • Defined as rules of the social game

    • Formal (written, as constitutions and laws in general) or informal (conventions, norms)

  • Are the result of past social compromises

  • Shape the representation of interests and the formation of political supply and strategies, as well as macro dynamics

    What institutions are not

    They are not practice, strategies, rules of thumb and must not be confounded with organizations (the state, political parties, interest groups etc.). Organizations are the players and institution the rules of the game.

Five institutional areas

  1. Product market competition

    • Degree of competition, cartels

  2. Wage-labour nexus and labour market institutions

    • Labour flexibility, employment protection, minimum wage policy…

  3. Financial sector and corporate governance

    • Bank-based or market-based finance, power of shareholders…

  4. Social protection and the welfare state

    • Pension, insurance, invalidity systems, unemployment benefits…

  5. Education system

    • Vocational or general training, specific or general skills…

Five types of capitalism

  • Market-based model

    • Competitive product-market, complementary with labour market flexibility, and highly developed financial markets. Weak welfare state. (UK, US, New-Zealand)

  • Continental model

    • Less competitive product-market, more developed employment protection and welfare state, centralized and/or bank-based financial system. Coordinated wage bargaining. (France, Germany, Switzerland…)

Along with the Mediterranean model (Italy, Spain…), the Social-democratic model (Sweden, Norway…) and the Asian model (Japan).

Five types of capitalism

Political mediation

Institutional change is the result of political strategies devised by political actors

  • Political actors mediate a social compromise between the heterogeneous demands

  • They devise a specific strategy of economic policy and institutional design

  • They select which interests to protect and to disregard to aggregate support

  • Idea that the ruling actors cannot govern only by brute force, but need a certain degree of support

Main concepts

  • Socio-economic groups

Groups of agents with common position in the economic structure (income groups, class, education level…)

  • Socio-political groups

Groups of agents sharing common policy preferences regarding macroeconomic policy and the socio-economic model

  • Social blocs

Socio-political groups aggregated by a political strategy.

  • Political equilibrium

Stable institutional configuration supported by a dominant social bloc aggregated by a winning political strategy

  • Political crisis

Break-up of the dominant social bloc

  • Systemic crisis

Situation in which no political strategy is able to aggregate a new dominant social bloc

Social blocs: some examples

Political economy analysis

Elements to consider:

  • Socio-economic model (institutions, complementarity, hierarchy)
  • Macroeconomic policy
  • Identification of social blocs
  • Political actors and strategies
  • Ideology

The Swiss model

A model particularly difficult to grasp, even in the existing literature

Switzerland’s institutional paradox

Presence of institutions very close to the market-based model:

  • Flexible labour market, low employment protection, weak labour unions
  • Absence of Keynesian-style macroeconomic policies
  • Weak welfare state, with prominence of private, market-based insurance schemes (health insurance, second and third pillars of pension funds)
  • Highly competitive and de-regulated exporting sector

But co-existing with non-market, coordinated institutions:

  • Protectionist, insider-oriented and bank-based financial system
  • Predominance of vocational training
  • Highly cartelized and protected domestic sector with low degree of competition

=> What kind of dominant social bloc made this model possible ?

The Swiss dominant social bloc

Bourgeois bloc

Coalition between the governing right wing parties (SVP, FDP, CVP) and business interests associations (EconomieSuisse, USAM…)

  • This bloc reconciles the contradictory interests of the dual structure of the economy (protected & regulated domestic sectors vs highly competitive and de-regulated exporting sectors)

Several issues with this definition:

  • A social bloc should not be reduced to a political alliance/coalition
  • No information about socio-political groups, and how the latter are aggregated through political strategy

Reconstructing the blocs

Social bloc Social groups Political actors Main policy demands
Liberal-conservative bloc (dominant)

Large internationalized export-oriented industries

Domestic-oriented SMEs, farmers, craftsmen, storekeepers, self-employed

Liberal-Radical party, Christian-democrats, EconomieSuisse, Avenir Suisse

SVP, USAM, USP

Labour flexibility, free-trade, weak welfare state, low taxation

Public transfers, protection from international competition, labour flexibility, low taxation
Left bloc (dominated)

Production & service workers

Socio-cultural professionals

 Swiss Socialist Party, Union Syndicale Suisse Employment protection, social benefits, real wage increase, protection from international competition

In search of social blocs: a general model

Socio-political groups

Groups of individuals with the same political/social demands

Social blocs

Socio-political groups aggregated by a political strategy

In search of social blocs: latent class analysis (LCA)

Clustering method to identify latent categorical patterns with categorical data

3-steps approach 1. compute the clusters, 2. assign posterior probabilities to sample individuals, 3. relate posterior probabilities to other variables (party support, socio-economic characteristics…)

The 90s: a potential political crisis

Political strategies during the 90s

Left bloc strategy (main actor: Swiss Socialist Party)

  • De-cartelization

  • Reform the financial sector (bank secrecy, Vinkulierung…)

  • Social reforms (welfare state, social and employment protection)

  • Pro-EU integration

Left bloc strategy: a Swiss Third Way ?

“In the recent past, the Socialist Party has often neglected the interests of the working class, thereby undermining the left-wing value of equality. Of course, the objective of freedom is more easily asserted today, because it can rely on a broader electoral base. The excluded are in fact in the minority, and therefore do not represent an interesting electoral mass.”(Rennwald 1998, 227, author’s translation)

The neoliberal-bourgeois strategy

Promote a neoliberal transformation of the Swiss model through:

  • European integration
  • Liberalization and privatization
  • Welfare state retrenchment
  • Competition policy (de-cartelization)
  • Stopping compensation measures (ex: subsidies to farms)

SVP’s “populist” strategy

Promote neoliberal transformation of the Swiss model, but with a certain form of “cultural” compensation

  • anti-European integration
  • Liberalization and privatization
  • Welfare state retrenchment
  • Against immigration

Results for 1999 post-election data

https://jeylal.github.io/selects1999results2/

Results for 1999 post-election data

Results for 1999 post-election data

https://jeylal.github.io/selects1999results2/

Left bloc strategy: the appeal of center groups

“The Socialist Party wants an efficient state. It wants to limit the tax burden and reduce public debt. For nothing is more anti-social than living at the expense of future generations. […] The SP does not want a welfare state that paralyzes individual responsibility. It therefore attaches great importance to the balance between rights and duties in social policy.”

The impass of the neoliberal-bourgeois strategy

  • Clusters fully compatible for a neoliberal-bourgeois strategy barely represent 5%
  • Strategy deemed to fail, at least in the short run
  • Explains the controversies around the neoliberal “white books” which were published in the 90s

SVP’s winning strategy

Evolution of political supply

Conclusion

  • The Swiss model is supported by liberal-conservative bloc, aggregated by a coalition between liberals (PLR-CVP) and conservatives (SVP)

  • This dominant social bloc can explain much of the evolution of Swiss institutions

  • The crisis of the 90s mirrors a crisis within the liberal-conservative bloc

What’s the state of play now ?

  • Institutional change has slowed down in Switzerland since the 90s

  • However, there are still some interesting evolution

  • Can we analyze the changes or stability by applying a latent class analysis using more recent data ?

How have things change two decades later ?

  • SVP still the dominant party

  • The Liberals still in decline and trying to find a new strategy

  • The left still a minority

  • Some small but important institutional change (pension reform, welfare state)

Try to aggregate your own social bloc !

  • As a concluding activity, I propose that you have a look to my most recent latent class analysis using Swiss post-election survey data for 2019 (see link below)

https://github.com/Jeylal/master-thesis/raw/master/lca%20estimations/selects2019_2024_13clusters_results.xlsx

  • Have a look at the profile sheet and the 3stepsprobsvote sheet

  • Consider one political strategy you are interested in (Socialist, liberal, conservative, social-ecologist, pro-EU strategy…) ==> can this strategy aggregate large enough socio-political groups (clusters) ?

References

Amable, Bruno. 2003. The Diversity of Modern Capitalism. Oxford ; New York: Oxford University Press.
Blaas, Wolfgang. 1992. “The Swiss Model: Corporatism or Liberal Capitalism?” In. New-York: Oxford University Press.
Charles, Léo, and Guillaume Vallet. 2024. “Fast and Curious: ‘The Swiss Development Puzzle.’ The Institutional Roots of the Success of Industrialization.” Review of Political Economy 0 (0): 1–27. https://doi.org/10.1080/09538259.2023.2298747.
Hall, Peter A., and David Soskice. 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford University Press.
Katzenstein, Peter J. 1985. Small States in World Markets: Industrial Policy in Europe. Ithaca; London: Cornell University Press.
Rennwald, Jean-Claude. 1998. Vive La Politique! Plaidoyer Pour l’action Socialiste, Syndicale Et Associative. Communication jurassienne et européenne (CJS).
Trampusch, Christine, and André Mach. 2011. Switzerland in Europe: Continuity and Change in the Swiss Political Economy. Taylor & Francis.

Celâl Güney